‘World Bank’s survey enhances equity value’

Chief Economist, Renais-sance Capital (RenCap), Charles Robertson, has listed the benefits countries derive by improving their Ease of Doing Business rankings. In an emailed report, he said the 2014 survey, which saw Nigeria dropping nine points to 147, is important for equity valuations as many factors drive market price earnings ratios.

Also, Kenya fell seven positions to 129 and Ghana, five places to 67. However, South Africa maintains its position at 41. Rwanda continues on its ‘Singapore of Africa’ path, rising 22 places to 32.

The World Bank’s annual Ease of Doing Business survey for 2014, ranks 189 countries, providing a simple benchmarking of the business environment across developed, emerging and frontier markets; and importantly, acts a guide as to the direction and pace of reform in different countries.

Robertson said the figures are important because despite the survey’s drawbacks some countries specifically target metrics examined by the survey. He said the survey provides a useful global barometer of which countries are pushing forward on reform, and progress to date.

He explained in a report that within a relatively wide dispersion, countries with higher rankings tend to support higher equity valuations. “The correlation suggests that a 10-position move in the Ease of Doing Business ranking could support a 0.4 times increase in a market’s price earnings, all else remaining equal,” he said.

The survey measures 11 factors, including ease of enforcement of contracts, connection to electricity, access to credit, tax payments and cross-border trade, among others.

Russia climbs 19 places to 92 in the 2014 survey, and is now the leading BRIC country. The country’s ambitious target is to reach a top-20 position by 2018. Elsewhere in the CIS, Ukraine showed the biggest improvement of all countries in ranking, up 28 places to 112. Georgia stays in the top 10, rising one place to eight. In Emerging Europe, Turkey and Poland both rise three positions, to 45 and 69 respectively; while the Czech Republic slips seven positions to 75, and Hungary slips two places, to 54.

He said 11 areas benchmarked by the Ease of Doing Business survey Complexity and cost of regulatory processes include starting a business. Here issues relating to procedures, time, cost and paid-in minimum capital requirement dealing with construction permits Procedures, time and cost are considered. Another factor also considered is getting electricity, paying taxes, protecting investors and resolving insolvency.